In the recent Supreme Court decision Southern Response Earthquake Services Ltd v Avonside Holdings Ltd  NZSC 110, Avonside’s rental house was damaged beyond economic repair during the 2010 and 2011 Christchurch earthquakes. Avonside’s insurance policy allowed it to purchase another property, the cost of which could not exceed the cost of ‘rebuilding your rental house on its present site’. Because the rebuild was only hypothetical for the purpose of calculating a figure, the Court referred to it as a ‘notional rebuild’.
The question before the Supreme Court was whether the amount payable under Avonside’s policy included a sum for contingencies and an allowance for professional fees for the notional rebuild. The High Court had earlier decided that these expenses were not included under the policy, whereas the Court of Appeal had decided that they were.
The Supreme Court confirmed that the amount payable under Avonside’s policy did include a sum for contingencies and an allowance for professional fees, notwithstanding the fact that the rebuild was only notional. Regarding contingencies, the Court confirmed that the estimate of rebuilding the damaged house must include contingencies to cover identified risks associated with the notional rebuild.
Click here to locate the Supreme Court’s decision.